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This podcast covers from START to FINISH How to Acquire a Dental Practice. Michael Dinsio, founder of Next Level Consultants has literally seen hundreds of deals as a banker in the industry & he has personally consulted hundreds of dentists as a Buyers Representative. Michael talks with GUEST SPEAKERS about Due Diligence, Legal, Demographics, and more... He invites experts to the show to help you avoid those headaches and heartbreaks. So start at the TOP w/ Episode 01 and work your way through the transition process. We break it down step by step in a true #UNSCRIPTED and genuine way.
00:00
Oh yeah! Here we go! Practice acquisition! There are pitfalls throughout the entire process.
00:29
year shark week is kicking off today. I am super excited about this week. We've got the top practice brokers all around the country that I will be interviewing and today is the first one. I'm super excited about today's interview because he's a friend of mine and I've done a lot of deals with him. I've learned a lot from him over those years and it's been a great partnership. So we are kicking off with Rod Johnston with Omni. So some of the highlights from
01:00
from the episode is don't use the rule of thumb because that could get you in trouble. Any rule of thumb is not going to be for every deal, right? We also talked about value is not based on opportunity. The value is based on the numbers and what the practice is doing today, not what it did historically and not what it could do. It's based on what's happened in the last two years. Cash flow is key. We talked about that. That's going to be a common
01:29
theme with every practice broker, cashflow, cashflow, cashflow. And then we deep dived a little bit into the ad backs and how to figure out cashflow, the net adjusted income you'll see on a lot of these prospectuses. we talked about that. It's a great episode to kick this whole week off. I'm super excited. Just as a reminder, we have t-shirts. Anybody that reviews the podcast.
01:56
and says obviously something positive, we will send you a t-shirt. So DM us on Instagram or Facebook if you write us a review and we will send you your very own Shark Week t-shirt. So let's get this whole series going. The very first episode of Shark Week, let's get Rod in here. Here we go, here we go. Acquisition uncensored.
02:23
The truth when buying and selling a dental practice. And now your host, Michael Dinsio. OK, OK, guys. Here we go. Another episode of Shark Week Dental Uncensored. We are running through the gamut here, For those of you who've been following along, let's get excited because we are kicking off Shark Week today.
02:52
We are starting with a friend, a dear friend of mine that I've been doing business for, gosh, a long time. And it's the perfect person to start this week. And he owns Omnipractice Group. His name's Rod Johnston, a practice broker up in the Pacific Northwest. They have about 12 brokers. They work all throughout the country, really. And this dude has a ton of knowledge. So Rod, thanks for being on the program, man. Oh yeah, yeah, no problem. So thanks.
03:20
I won't take any offense calling us sharks, but that's. Well, you're supposed to actually you're supposed to take offense to it. we are sharks. No, I would say pun intended. Not no pun intended. No, mean, at the end of the day, it's fun to have fun with it. But but yeah, you guys are representing the other side and.
03:48
We had the honor of having Cindy on the program earlier on this season. Omni is a fantastic group. And Cindy gave us a lot of great information about what it feels like to be a buyer and a seller. She sold with her husband, I think a couple of times. I think you helped her with that maybe once or twice. And so it was just a great episode and I'm looking forward to today. So tell us a little bit about Omni. We're gonna have...
04:16
a bunch of Omni information below in the show notes, you know, walk us through Omni and what you guys are all about. Yeah. So my background's counting in finance. was assistant treasurer for AT &T Wireless, which then they got bought out by Singular. I happened to be flipping houses on the side kind of for fun and met a dentist. And we worked together on some things and... Famous last words, met a dentist.
04:44
Met a dentist. I know a guy. I know a guy. So he asked me to help him sell his practice and we did a couple more and it just kind of kept going and it fits my background perfectly because I did a ton with AT &T on the financing side and I also did sales right out of college. I was a stockbroker for a year and some other things. So it was all just fit perfectly. I work with the M &A group at AT &T.
05:12
So was like, oh, that was kind of fun. And I was happened to be researching business brokering at that time. And I didn't realize there was such a thing as practice brokers. it just kept snowballing and going. after a couple of years, I started out just in Washington and then we jumped into Oregon. And then a few years later, lady I know called me and she had worked for a CPA firm and she...
05:39
left the firm and she's like, Hey, I thought I'm thinking about being a practice broker. And he thought thinking about hiring anybody and said, sure. And she was in Oregon and it worked out great. And then another guy I worked with in Colorado joined us and another, my college roommate, uh, joined me. And then I hired Steve Kikikis to do just the real estate. So he focuses on just the real estate. have a couple real estate brokers now, and it just has kind of organically grown by itself with really, haven't really done hardly any recruiting.
06:09
whatsoever of brokers. And now we're have broker, how about 12 brokers throughout the United States. And we have sold probably 400 or so practices over the years. And there's three of us that are certified valuation analysts. And we've done over a thousand practice valuations. I've done expert witness testimony on several practices, everything from divorces to I did the Korean air crash, where there's a dentist on board the Korean.
06:39
um, air crash in San Francisco. I got to, uh, be deposed by Boeing and their attorneys and, and Korean air. So that was kind of fun. And, so, so yeah, it's, it's been interesting. I've been doing it for 18 years and it's kind of ebbed and flowed and, you know, the banks have changed. It used to be one or two banks for financing practices and, and, uh, you and your old B of A days was one of them. then
07:05
That's kind of evolved. Now there's probably a dozen that are financing practices in all the states really. it's, and values have been creeping up over the years. That's primarily due to interest rates. When I started interest rates were about seven to seven and a half percent. And then they kept going down and down at one point. I think one of the banks had like 1.8 % financing and
07:31
And so that's, there's a correlation between values of practices and interest rates too, because the values are based on cashflow. So after debt service, there's, there's more cashflow with the interest rates are low. So you're getting into, you're getting into a lot of stuff here, Rod. You're, you're, I think you should be the host today and I'll, and I'll be, I'll be the question guy or I'll take the questions, but no, mean, dynamic of being a broker is, is we're not just a salesperson that goes.
07:59
we don't just go match a buyer and seller together. We have to know accounting, we have to know finance, we have to know what the interest rates are. We have to know how practices work, where the good things are in a practice and where the potential improvements are. We'd have to know the real estate side of things and look at the leases. So you have to know 15 different things in order to be a practice broker. can't just be a former dentist and go out and start selling practices.
08:24
I, you know, it's, it's interesting because in, in a lot of worlds where, you know, valuation and practice or not just practice, but just evaluation, you know, I went through that training too. I find that like, you know, consulting what the work that I do, um, and brokerage, there really is, uh, an intermingling there because, you know, in order to sell a practice for more or help someone with an exit strategy, you have to.
08:53
you have to understand what moves to practice. And there's a lot of overlap there. And so I think you make a great point and that is that, brokers aren't sharks. There's definitely some out there. The ones I'm interviewing, definitely not, but there's a lot of practice brokers in the country that you do gotta be careful of. However, I can honestly say that there's...
09:21
There's the most of them, most of the practice brokers and you could, you were the president of the 80, what is it? The NA- National Association of Practice Brokers, I mean, you have a good sample size there and a lot of those people are almost consultants themselves, right? mean- Oh yeah, yeah, you're-
09:43
psychologists even at times because sometimes it's good to have that mediator between the buyer and the seller because there's times when the buyer's really upset about something going on the sale and they just want to walk away or they want to call the seller up and just chew them out or the seller wants to call the buyer or the banker and chew them out. And we have to be the peacemaker in between the two. It's just like, no, no, let's figure it out. We'll calm down. We'll, and we get over all the speed bumps in the road.
10:12
Yeah, so we're problem solvers and yeah, so it's fun. So 400 practices over the years, needless to say, you've got a lot of experience. One thing that I wanted to jump into early on in this interview was what are some like pitfalls that buyers make on a daily basis? you know, as me as a buyer's rep, I've got my sample size and I see the issues, but
10:40
someone that's been doing this a lot longer than me, you've seen it over the years. What are some of those common things that you think buyers do where they're getting themselves in the way of themselves? If that makes sense. I think number one and the most common thing is buyers, they aren't educated on how to buy a practice. That's where someone like you comes into play where you can help show them what they need to be looking at.
11:10
ton of buyers that just come in and look at a practice and they're like, okay, it's a dental practice. What do I look at? And they don't know how to read financial statements. They don't know that the fact that there's no endo in the practice or there's no ortho in the practice is a good thing because that's something you can grow in the practice. So they don't know how to analyze the practice and they've heard the rule of thumb valuations of
11:37
70, 80, 90 % of collections, whatever it is that year. So just the, you know, they really should attend some of the, in fact, just to do a little pitch, you have a buyer's seminar coming up. So attend those and just educate yourself on what you should be looking for in a practice. Cause we get a ton of buyers come in and kick the tires and they just look at them and.
12:04
they rule it out right away without seeing that, okay, it's a four-op practice or even a three-op practice. They'll rule those out because it's a three-op and they want four-op. And the more ops you add, the more rent you're gonna pay. So bigger is not always better. So. I love that tip because podcasts are the problem. Books are the problem.
12:34
general rolls of thumbs, rolls of nose, get into the way of these deals because I had a client the other day, I know this isn't startup uncensored acquisition, but point in case, you know, she listened to a podcast and someone was saying how you have to do at least eight ops these days if you want to sell to DSO or corporate. And this is a startup. I mean,
13:03
I mean, come on, like most of our clients, Rob, are, that you're selling a practice from my buyers, buying your, your practices. Most of these practices are five ops, six ops, and they're making tons of money. They have great businesses. They're in great areas. They've, they've fed their family, fed their retirement for years. And here's someone's on a podcast saying you need at least eight ops or six to eight ops. And so then you have these buyers walk in to due diligence and just.
13:34
using the rules of you know? So with that being said, let's roll that into the next question is in your mind, if you were buying a practice, and I know that you have, what would be the things that you would look for if it was your practice or your daughter buying a practice? Like what would be the most, the biggest thing that would stand out to you?
13:58
Um, for me personally, I like the, um, the fixer practices, but that's probably because my background, I flipped houses. So I used to buy garbage houses and fix them and sold them for a profit. So I like those practices that are run down and the doctor used to do a million dollars a year, but now he's 74 years old and he's slowing down and he's got old equipment. Um, and he's now doing 600 or 700,000, but he's just.
14:25
in maintenance mode at that point in time. He's, he might, might have a hygienist. might be doing the hygiene himself. He's got old chairs, chairs, prices of chairs have come down, although with the supply chain stuff, I'm not sure where they are today, but they used to be like 12 or 15,000, but now you can pick one up for probably seven or eight, eight grand. So, so yeah, I I like the fixture practice where I look and see that, that there's no ortho and they're doing a lot of,
14:54
hygiene, but not a lot of treatment in the practices. I wouldn't have a problem with a three out practice because you know, you can grow that fairly quickly. You're not paying a ton of rent and you can quickly if you do outgrow the space, you can find another space to move to fairly easily. So, so those type of practice, but everybody's different. Some people want to go into a practice and have one that's cash flowing already and it's doing 1.5 million and you just.
15:22
pull out the cellar dentist and plop in the new dentist and you can keep that going. So just, it's a personality thing. It definitely is. Are you an entrepreneur or are you kind of not? And it's okay not to be by the way, folks, like you don't have to be Superman or superwoman, know who you are and understand that. And I think the better that you understand yourself, you can look at a practice that these practice brokers show you and you can
15:51
hopefully see the opportunity. So it's really about opportunity to sum that up as you're trying to dig for the opportunity and the practice and you can realize quick gains and keep your debt low and potentially flip the practice if you're that entrepreneur. So that makes a ton of sense. That fits my personality too, however, you know, I...
16:18
practice manage lots of practices and it's hard to run a business these days. There's no question about it. So what, so let's talk about valuation for a half second. Let's not get into the theory. know your brain's a lot bigger than mine when it comes to theories and calculations and all that. But speaking of the fixer upper, get the, I get into the conversations all the time because there's the unicorn practice that's thrown off.
16:46
tons of money. Everybody wants that practice. It's in a very, very, you know, Bellevue or, know, whatever Redmond Kirkland here around the Northwest. But you just mentioned like the fixer upper and you know, a practice throwing off 700,000 isn't necessarily a crappy practice. Like you said, if it was doing a million dollars and it's doing 700 and still making good money, it's not a bad thing. How do sellers like there's valuation.
17:15
And then there's like opportunity. So I want to have that conversation because of course broker's job is to sell the opportunity, but the banks are only going to lend so much and whatever, yada, yada, yada. How do you get the seller's psyche or that mind shift that it's not worth a million dollars because it did that 15 years ago. How do you, because the buyers, the buyers are looking at that saying this thing's tanking, you know.
17:43
I wanna buy it for a bargain, you know, and that's not necessarily appropriate either, but there is a middle ground somewhere and how do you help the sellers navigate like that it's not worth a million dollars, dude? Yeah, that's, I'm laughing because that's, we brought into that 75 % of the time. It's like, well, I used to do 1.5 or they're building a new, you know, development right behind my office. So it's gonna go up and, you know, production is gonna go way up. So.
18:12
know, the value is not based on potential and we do our best to educate them and seven out of 10 will get it. You know, if we tell them it's just like values and banks finance based on your last two years collections, not your last five years, so they don't go back. like, oh, okay, you did 1.5 five years ago, so let's base it on 1.5 million.
18:37
It's in fact, we have a deal like this going right now where we made an offer and I don't think your seller was okay with it. No, no, no, but it doesn't matter if productions down because of the health reason or you lost a hygienist or what the reason is that banks don't care. They're like your collections are down. That's what the value is. It's, it's, know, it's like having a car. It used to be nice and shiny and beautiful and you can sell it for
19:05
$50,000, but now it's five years later, it's been run down and beat up and you can't sell it for what it used to be worth. So. Yeah. And do they, do they fight you pretty hard? Like when you do the valuation and you send them the number, is it always like a shock to them? And like, how's that usually go down? Yeah, no, it, uh, yeah, usually they are surprised. They said, you know, it used to do this. So it should, we think it should be worth this. And.
19:35
And sometimes we give in and we'll say, well, how about we do this and put it on the market for 30 or 60 days. And if we get some somebody who really wants the practice, we'll try to do our best to get it. But you have to be willing to carry back some of the financing because banks only finance 85 or 90 % of the collection number. So.
19:57
So we have to carry back, which means that the banks will finance, you know, 850,000, but you have to finance the last 200,000 yourself. If you could find a buyer, that's okay with the price, right? Yeah. Yeah. Yeah. So seller carrybacks are a good topic. get that question a lot. Let's save that for the end of the episode. I could imagine folks, you know, most of our listeners are buyers, I think.
20:27
I want you to imagine what these poor sharks have to do. They have to go out to the market and there's probably, I don't know, there's a handful of competitors that you compete with in every single market, right Rod? So each broker is out there trying to find a seller to potentially list their practice. So then they have to say to the seller, hey, your practice isn't worth that much. And then the next broker could come in and say, your practice is worth
20:56
A million dollars, Rod said it was only worth eight year practices. And then, and so then there's this expectation and I'm sitting on my side of the buyer side, right? That the practice broker and that one might be a real shark where they're trying to drive for a million dollars. Rod valued it appropriately. It should have been put to the market appropriately. And so then you start creating these really unhealthy conversations. You know, you start getting people in bad.
21:26
bad shape and Omni is a very, very reputable, very reputable brokerage firm. How like, if you were a buyer, how would you, how would you navigate those waters? You mean as far as looking at a practice that one broker has valued it?
21:49
300,000 more than the other broker? Yeah. I mean, you would never know that because the practice is listed, right? And so it's listed for a million dollars, but it really should be 700 because that's appropriate. You know, and think about that folks, like the brokers are trying to compete for that business. And so that's a hard situation. They're trying to get that listing. So if a broker takes a practice and lists it for a lot more, what are some things the buyers can do
22:18
to really like make sure that they're not paying crazy amount of money for it. Does that make sense? Yeah, yeah. Well, yeah, I understand that not all the prices of practices are based on the broker's valuation. Like example you just gave, there's sellers who they require 1.5 million even though the practice is only doing a million. They're like, no, that's what we wanna do it. But the practice on the market at 1.5 and.
22:48
even though we valued it a million and sometimes we will do that like the case you're talking about just to show the seller that you know the market's not going to pay that so my advice to the the buyer would be go ahead and submit your offer you know provide some support to your offer and show that this is how we valued it and more than likely it's going to be in line with where we came at you know if you use you as a consultant and even some of the other brokers and
23:17
And we're fortunate we have some really good brokers in the Pacific Northwest and we get along great with all of them. So, yeah, they'll provide you good feedback and just show the seller that this is we're right. It should be on the practice. It's almost like and that's a good point. Like your client's the client. And so you have to listen to the client and you have to represent them to the best of your ability.
23:47
that conversation probably has happened. So the team, getting a team, even you, Rod, valuing a practice, you guys do valuations all the time. You can work with people like me, like Rod, all across the country that can help you come to that proper number. That's what I'm hearing. Yeah, exactly. And there are those unicorns that the cashflow is so crazy, the overhead might be.
24:15
know, national average is 65%, but their overhead might be 40. And you're just like, holy cow, this thing's, you know, the cashflow really does support 140 % of collections. So it's just like, well, how do you value that? You know? Yeah, it goes, it does go the other way. I've seen those where you're, you know, a broker would be asking 110 % of collections and, and it's totally justified because the practice is making so much money. you always, taught me this
24:45
years ago, the million dollar role, if a practice is, you remember this, what you told me 10 years ago, walk us through that. If you have $2 million practices, what's that scenario like? Well, it's, I go through this in one of the seminars, and if you have two practices, one's producing a million dollars with 65 or 70 % overhead.
25:12
and another one's producing say a hundred or eight fifty with fifty percent overhead, which one's which one's going to be worth more? The one that makes the more money. mean, it's yeah. And naturally you would think that it's like, well, it's it's you know, the rule of thumb is eighty, ninety, whatever percent of collection. the million dollar practice is going to be worth the most. But in reality, if you do the cash flow analysis, the lower producing practice is actually worth more because it's cash flowing a lot better than
25:42
larger practice. So when we look at it from a cashflow basis, sometimes the lower producing practice is worth more. And cash flow is key. It's king. So you guys try to do a great job or you guys try to lay out cash flow very clean for buyers in your perspective. What would you say to the buyers? I guess it's probably the same advice that we just said as far as getting a team together, but
26:12
What are some of the, let me ask it a different way. What are some of the like pitfalls that buyers do when they're looking at financials? Because they, know, buyers, they're not CPAs. You're a CPA. I'm not a CPA. I've looked at them for years. Of course I know, but they have never seen them. And so what's the biggest pitfalls you hear from buyers? Yeah. Well, the funny one to me anyway, and,
26:39
most accountants is they'll look at the profit and loss statement and say that they're not making any money. How do I buy this practice? It shows a negative $50,000 on the tax return. And know that the goal of most accountants is to have their client pay as few taxes as possible. there's going to be some things that are in the practice that they're called add backs.
27:09
you start out with that negative $50,000 and you start adding back expenses such as they may be employing the wife in the practice as a bookkeeper. And she may be doing the books, but they're getting paid 75 or $80,000 a year and they're only doing books three hours a week. So you add that 80,000, also that negative 50 becomes a positive 30. And then you keep going through the P and L and profit loss statement, the tax return and start
27:38
keep going all those ad backs eventually come and you'll get the true adjusted net income of the practice. So don't look at a tax return or a profit loss statement and say, my, well, it's not making any money. I wouldn't buy this thing. It is, you just need to dig a little deeper and have someone like Mike or myself or someone help you go through those numbers that know what they're doing. That can be really frustrating. I could imagine a buyer frustrated about that, right? Yeah.
28:08
Most clients that I work with just in general, most folks that are approaching a sale or startup, they're cautiously optimistic. I wouldn't say that they have an adversarial, like untrusting persona, but they have a healthy skepticism, I suppose, is probably the way that I would say that. And so when they're approaching a situation and they see a tax return or
28:37
profit and loss that's a negative profit, I can see how maybe their guard goes way up. so it really is working through that. think the really good brokers will dig in like you guys do and say, hey, listen, I'm about to send you financials and you're going to probably think it doesn't make any money, but let me explain it to you. That's the job of the broker really to do that.
29:06
Yeah, yeah. And we have some really good brokers who know the financial end of things that can walk you through the valuation and the numbers. And use your broker to your advantage. We're in this for the long haul, so we're not going to try to pull wool over your eyes. we think it's a good practice, we'll tell you it's a good practice. If we think there's a lot of work that needs to go into the practice, we'll tell you there's a lot of work that needs to go into the practice. So we're going to be in this business for long time.
29:36
Our word is everything. No, that's that's so true. Again, we're having fun with the whole shark week week. But, you know, my favorite question to ask brokers is like, OK, what's wrong with this deal? Because there's something wrong. There's something wrong with every practice. mean, I'm a I'm a practice consultant. There's something wrong with every single practice. My job is to to rat out where my company can help businesses grow. So.
30:04
There's just something wrong with every practice. I've never found a perfect practice. That's good advice to buyers too is don't look for that perfect practice. get to, we call them tire kickers. We have people that call us and we know who they are. And they've been looking at that practices for seven years. And you and I have a notorious one who kept looking and looking.
30:30
And we finally told her, it's like, know, if you had bought that first practice we showed you seven years ago, it would have been paid off and it was a million dollar practice. And you'd have a million dollars of equity in your pocket and you can sell it and go buy your dream practice today instead of, you know, waiting seven years working as an associate and probably seven different locations in those seven years, you know, struggling through that. You could have built some equity in a practice and then go buy your practice. It's so true.
30:59
you we always talk about you and I, like, opportunity costs. the opportunity costs of not getting into ownership for yourself is a lot bigger than you think it is. When you really put pen to paper and you start looking at it from a data, from a math perspective, it's actually quite depressing by continuing to go into that
31:26
associate position that you're probably driving to right now, listening to this podcast. And although it's a great practice and you might love where you work, it's not yours and you're not benefiting from the equity, from the extra cashflow. It's definitely harder. There's no question about it. mean, Rod, you've been an entrepreneur your whole life. I own Next Level. It's hard, right? It is hard managing people, but it's so rewarding. It's so rewarding.
31:57
Well, you know, we didn't get to carry backs. I feel like we might snooze them a little bit. We're at the end of the episode. If you're interested in carry backs, reach out. We can walk you through either of those. Rod's contact information will be below. Mine will be as well. But Rod, any final thoughts that you would like to speak directly to buyers?
32:24
give them a golden nugget if you have one on what not to do when approaching a practice broker. Well, if I were to give some advice, I would say get on all the brokers newsletter lists and study up as much as you can on owning a practice. When I first got into
32:45
Brokering I didn't know much about dental practices, but I started going to practice management seminars and webinars and there's so much information out there these days that you can really get a good education just from sitting at home and going on to YouTube and all these other things so learn about the finances and those types of things and then and then you know buy a practice sooner rather than later Don't look for that unicorn, you know kind of
33:11
The other thing is that as an associate, you don't want to be an associate in the town that you want to eventually by practicing because you're not compete will come into play. So, so classic, classic one. That's a golden nugget in itself right there. There's so many pitfalls, but that's that's 100 % Rod. Thanks as always, my friend for being on the show and participating. Anybody that's interested in talking to Rod or
33:40
anybody that works for him that's in his family, reach out directly. They're a great company. Wealth of knowledge. Rod, I can say that I've learned so much from him over the years myself and he'll answer questions whether you're his client or not. And I know that about him. So, yeah, happy to. Yeah. So with that being said, let's sign off. Thanks again, Rod, for being part of Shark Week. Thanks for having me. All right. Take care.
34:14
Tune in next time for another truth-filled episode of Acquisition Uncensored. We want to hear from you. Interact with your host Michael Dinsio. Follow us on Facebook and YouTube. Comment and Subscribe!